For one thing, the U.S. gross domestic product growth is expected to slow to 3.3 percent in 2005, well behind the anticipated 4.3 percent finish for 2004. Also, relatively high oil prices--trickling down to the gas pump--will linger. Both factors could combine to dampen spending at middle-market retailers.

But there will be exceptions, of course .

"Chains with more of a fashion orientation, like Federated Department Stores and J.C. Penney, will likely lead the pack," Zahn said. Warehouse clubs, more popular than ever since adding high-quality perishables, will continue to grow. So will home improvement chains, despite higher interest rates.

Luxury department stores should prosper again in 2005 as splurging on swanky goods persists. One caveat: The pace of sales growth for high-end retailers will slow.

"We've seen the best of the gains in the luxury market," Michael Niemira, chief economist for the International Council of Shopping Centers, said Wednesday. "It's likely to grow much slower in 2005."

In the first half of 2004, a wide swath of retailers posted super-sized sales. A 2005 encore is unlikely.

"A number of retailers benefiting from the Bush tax goodies and surging economy in the second half of 2003 and the first half of 2004 will now be exposed," Michael Baker, publisher of "Specialty Retail Research," said in a December report.

For example, Target Corp, known for fashionable goods at value prices, is up against impressive 2004 numbers. "This trend continues through May," Citigroup Smith Barney says. "The company's first-quarter 2005 same-store sales comparison of 7.3 percent is the most difficult in the last five years."

Wal-Mart can't rest, either.

Rapid growth at the world's biggest retailer is harder to come by as high energy prices pinch low-income shoppers. Another lingering issue for Wal-Mart--which has been building an additional 260 Supercenters a year--is cannibalization.

"We're concerned that Wal-Mart's strategy to position large Supercenters closer together may" continue to depress sales growth at existing stores, Goldman Sachs analyst George Strachan said in a note to clients. He recently downgraded the stock of the Bentonville, Ark., retailer. "The company can recalibrate some openings to minimize cannibalization, but as the store base expands, this will become increasingly difficult."

Wal-Mart's endgame, he noted, is to have 15 percent market share of the U.S. retail industry--up from 7 percent or 8 percent today.

Indeed, Wal-Mart remains the retailer to beat, Fitch's Zahn said. As it expands geographically and offers a wider selection of categories such as electronics, other retailers must respond with broader inventories, innovative marketing and better service.

Evidence exists that retailers are indeed learning how to compete in a Wal-Mart world.

"Even prestige department stores such as Saks Fifth Avenue had an early sale," WSL Strategic Retail President Wendy Liebmann said.

"And Nordstrom defied its sacrosanct `only two sales a year' and added a third," she noted. "What Wal-Mart has taught shoppers over the last two decades is that, regardless of income, or where or how they live, they shouldn't overpay for anything."

Faced with a stagnating store base, as well as a desire for better economies of scale, department-store chains will scout acquisitions.

Last November saw the proposed merger of Sears, Roebuck and Co. and Kmart Holding Corp. Federated Department Stores Inc., outbid by May Department Stores Co. for Marshall Field's in 2004, has indicated it is in the hunt.

Saks Fifth Avenue Enterprises, for example, recently announced about a dozen store closings. The merger of Kmart and Sears is expected to result in the sale of stores as well as a bleak future for the Kmart name.

"Kmart's merger with Sears will accelerate its downsizing" as hundreds of its stores are converted to the Sears banner, Zahn said. "The long-term outlook for Kmart and Sears remains uncertain given weak operating trends, evolving business models, and the plan to" cash in on excess real estate, he said.

A shakeout also is inevitable in the office supply sector. The Big Three--Staples Inc., Itasca-based OfficeMax Inc. and Office Depot Inc.--are expanding. But there's room for only so many stores, Zahn said.

Baker, publisher of "Specialty Retail Research," noted there were about a half-dozen major retail bankruptcies in 2004. Merchants going bankrupt included Footstar Inc., KB Toys Inc. and Gadzooks Inc.